Japan’s April-June GDP grows, affecting tax hike decision

The economy grew an annualized real 2.6 percent in the three months through June with consumption and exports recuperating, the government said Monday, possibly further swaying Prime Minister Shinzo Abe’s fall decision on whether to raise the 5 percent sales tax to 8 percent next April.

The rise in April-June inflation-adjusted gross domestic product corresponds to a 0.6 percent advance from the previous three months, the third straight quarter of growth, the Cabinet Office said in a preliminary report. GDP is the total value of goods and services produced domestically.

The result fell short of the average market forecast of an annualized 3.2 percent growth in real terms in a Kyodo News survey.

Consumption, the biggest component, accounting for around 60 percent of Japan’s GDP, increased a real 0.8 percent, up for the third consecutive quarter, on the back of healthy sales of luxury goods such as jewelry, with consumer confidence improving amid higher share prices.

Exports expanded 3.0 percent, up for the second consecutive quarter, with the U.S. economy bouncing back and Abe’s economic policies, dubbed “Abenomics,” entailing drastic monetary easing by the Bank of Japan and massive public spending, having driven down the value of the yen.

Business investment remained slightly lackluster, down 0.1 percent on quarter, the sixth quarterly loss, the Cabinet Office said.

The GDP deflator, a wider price gauge than the consumer price index, rose for the first time in three quarters, up 0.1 percent, indicating the economy has shown signs of breaking out of nearly two decades of deflation.

The government plans to hike to consumption tax to 8 percent in April and to 10 percent in October 2015.

Abe has said he will make a final decision in the fall on whether to go ahead with the first round of the tax hike, regarded as key to Japan’s fiscal reconstruction, while closely monitoring economic data and the possible effects of it on the economy.